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Power System Economics

Power System Economics. Daniel Kirschen. Money. What about money?. Minimizing costs Operating costs Fuel, personnel, maintenance Investment costs Generators, lines, transformers, switching devices, … Maximizing profits Competitive electricity markets Maximizing utility or benefits

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Power System Economics

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  1. Power System Economics Daniel Kirschen

  2. Money

  3. What about money? • Minimizing costs • Operating costs • Fuel, personnel, maintenance • Investment costs • Generators, lines, transformers, switching devices, … • Maximizing profits • Competitive electricity markets • Maximizing utility or benefits • Consumer’s perspective

  4. Reliability

  5. What about reliability? • Operational reliability • Withstand faults, failures, forecasting errors and other common operational problems • Operate with a security margin • Planning reliability • Ability to handle long term problems • Units on long-term maintenance • Droughts • Build enough spare capacity Reliability

  6. Cost of reliability • Providing a security margin and spare capacity costs money • Run additional generating units to have some operating reserve • Limit production of some generating units to avoid problems in case of a sudden outage • Build additional generators and transmission lines to improve long term reliability

  7. Value of reliability • Poor reliability cause consumer outages • Outages cause a loss of revenue or comfort • Measured using surveys • Estimate of cost of latest outages or • Willingness to pay extra to avoid outages • Value of Lost Load (VoLL) • Average value of a MWh not delivered • Estimates range from $2,400 to $20,000 • ~ 100 times larger than the cost of energy

  8. Balancing the greed and the fear

  9. How do we model this balance? • Mathematical optimization problem • Cost minimization or profit maximization • Reliability introduced through constraints • Explicit costing of reliability is still controversial

  10. Environmental impact

  11. Three-way balancing • More complex optimization problems • Some environmental effects can be monetized • Operating cost of renewable generation is essentially zero • Carbon tax or carbon trading to reflect the effect of CO2 emissions • Others cannot be monetized • Effect of hydro generation on salmons • Modeled using additional operating constraints

  12. Government energy policy • Not “pure” economics • Markets and companies take a short term view • Long term or strategic considerations • Reduce dependence on imports • Introduction of competitive electricity markets • Choice of primary energy sources • Promotion of wind and photovoltaic in Germany • Nuclear power in France • Energy conservation in the Pacific Northwest

  13. Course outline (1) • Organization of the electricity supply industry • What are the major economic functions? • Who does what? • Introduction to optimization • Optimization with continuous variables • Optimization with discrete variables • Traditional power system economics problems • Economic dispatch • Unit commitment • Optimal power flow

  14. Course outline (2) • Basic concepts from economics • Organization of electricity markets • Participating in electricity markets • System security and ancillary services • Effect of transmission networks on markets

  15. Textbook A. Wood and B. Wollenberg, “Power Generation, Operation and Control”, Second Edition, Wiley-Interscience, 1996 D. Kirschen and G. Strbac, “Fundamentals of Power System Economics”, Wiley, 2004

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